The Financial Bailouts: Secrets, Lies and Democracy


5-01-09, 10:00 am

It is a step forward that the Obama administration plans to lift some of the secrecy surrounding US war crimes committed under the Bush administration. Those crimes include secrecy and lies, which violate the foundations of democracy.

There is another area where Bush-era secrecy and dishonesty needs to be lifted now. This is in the ongoing, massive bailouts of the handfuls of families who own most capital in the US.

Elizabeth Warren heads the Congressional Oversight Panel, charged by the US Senate and House with overseeing some of the financial bailouts. She recently lashed out at the US Treasury for withholding key information. The Boston Globe published an extraordinary, and extraordinarily angry interview of Warren on April 12.

The interviewer asks Warren, “What troubles you most about what [information] you're getting and what you're not getting?” Warren replies, “There's no discussion of the overall policy. Instead, there are specific programs that are announced, and from that, it's necessary to reason backwards to figure out what the goal must have been… It's frustrating because without a clearly articulated goal and identified metrics to determine whether the goal is being accomplished, it's almost impossible to tell if a program is successful.”

The interviewer then asks, “Do you have a clear sense of what the overall [bank bailout] plan is supposed to do? Are you capable of summarizing what it's supposed to be doing?” Warren replies tersely, “No. And neither is Treasury… The minor problem is documentation. I've spent four weeks now looking for someone who can give me the details of the stress test [supposedly to see if the largest US banks can withstand an economic downturn], so that we can do an independent evaluation of whether the stress test is any good.

“We get: 'someone will call you right back,' Warren continues. “Only the call doesn't come. The major problem is that Treasury has not articulated its goals…” Warren then accuses Treasury of outright dishonesty: “Treasury specifically designed a program that had the effect of subsidizing the financial institutions, and simultaneously represented to the [Congressional Oversight] panel and to the American people that there was no subsidization.”

“So,” asks the interviewer, “they weren't really telling you the truth?” “They said one thing,” Warren replies, “and did another.”

By some estimates, the US Treasury, the Federal Reserve and other agencies may have already spent or committed over $10 trillion to bail out the owners of capital. Warren's office is charged with overseeing less than 10 percent of that amount; much of the rest has been spent or committed by a few people at the Federal Reserve. (Because of the secrecy, the exact amount is difficult to determine.)

Columbia University economist Jeffrey Sachs was an architect of the secret, top-down “shock therapy” that resulted in a precipitous decline in wages and the standard of living in the former USSR. Sachs is well-connected. Yet on April 7, Sachs complained about the bailouts, 'What is incredible is the lack of the most minimal transparency so far about the rules, risks and procedures…”

The secret Treasury-Fed bailouts are setting the stage for terrible declines in the standard of living not only in the US but worldwide. Domestically this could take the form of assaults on wages, education, health care, Social Security and Medicare, and jumps in regressive taxes, such as sales taxes, fees and fines, which hit the poorest hardest. Currencies are effectively being debased. Internationally, the bailouts are setting the stage for wars, the break-up of the European Union into competing blocks and collapse of its currency.

Capitalism today is facing a crisis akin to those that led to the first and second world wars, and the accompanying destruction of many trade unions and working class parties. But those wars also opened the path for some of the greatest victories in working class history, including the Russian and Chinese Revolutions. One important democratic demand raised by Communist Parties in those victories was for an end to capitalist secrecy.